be kept by the receiver-general, as is required at present in the United States. So long as these notes were in general circulation and redeemed on demand by the bank issuing them, they might be received in all payments due to the government. Should any bank fail to redeem its notes, the government on being duly notified would prepare to do so. Each bank established under the act was required to send in detailed half-yearly reports of its capital and business, in much the same form as that prescribed for the chartered banks.

Most of the current criticisms of the measure anticipated the driving out of the chartered banks by the free banking system. The contrary, however, was the tendency; inasmuch as the new form of banking not only involved the locking up in comparatively low-interest-bearing securities of the total amount of the authorized note issue, not all of which could be in circulation at once, but the keeping on hand of an additional amount of idle specie to redeem such current notes as might be presented.

It is quite true, from the point of view of the note-holding public, that the free banking system was much the safer; but where there was little accumulated capital in the country willing to accept a low rate of interest, the elastic system of note issue already established in Canada was much more suited to the existing needs of the country.

The Free Banking Act having become law, the only existing bank to avail itself of the new system was the Bank of British North America, which adopted it merely to enable it to issue notes down to the one dollar limit. Its charter had restricted its issue to £1 currency or four dollars. Three new banks, however, took advantage of the act to come into existence-namely, the Molsons Bank, the Zimmerman Bank, and the Niagara District Bank. The last had previously obtained a charter, but was unable to secure the necessary funds to enable it to start business.

Perceiving that the chartered banks would not adopt the free banking system, the inspector-general introduced further legislation with a view to inducing them to place part, at least, of their circulation on the basis of provincial securities.

VOL. V

S

The chief inducement was that they would thereby escape taxation on their note issue. The banks, however, still declined to respond.

IN

IV

DECIMAL CURRENCY

N 1850 the United States reduced by twenty per cent the currency value of certain Spanish and Mexican coins which had been flowing into the country; these were the quarter, eighth, and sixteenth dollar pieces. In future these were to pass for twenty cents, ten cents, and five cents respectively. As these coins were accepted in Canada as legal tender to the extent of ten dollars, it was necessary that a similar rating to that adopted in the United States should also be established in Canada. Accordingly an act was passed making the necessary change in the ratings of these coins. By another currency amendment act the ratings of the dollar and its half were changed from 5s. Id. and 2s. 6d. to 5s. and 2s. 6d. respectively. This act also authorized the issue, under the authority of the governor in council, of silver coins of the value of $1, 50c., 25c., 20c., Ioc. and 5c. Under the corresponding currency denominations these were 5s., 2s. 6d., Is. 3d., Is., 6d., 3d. A supply of gold coins was also authorized corresponding to the $5 and $4 or £1 currency values.

In a memorandum accompanying these acts on their reference to the home government, Hincks enlarged upon the advantage of adopting a uniform currency throughout British North America and of having it assimilated to that of the United States. During this period of 1850-51 there was much desire throughout Canada for reciprocal trade relations with the United States. The passing of this currency act led to further interesting and instructive controversy between the British Lords of the Treasury and Hincks over the respective rights of the home and colonial governments to deal with currency standards and establish coinages. Hincks argued the colonial side of the question with great

ability and clearness, and was supported by both parties in the Canadian assembly. Thus, although his measure was disallowed on technical grounds, the principle of colonial authority to deal with currency matters was never afterwards seriously questioned. While, therefore, no Canadian provincial coinage was established at this time, the way was prepared for it. The home government was at last convinced that it would be impossible to force upon Canada the British sterling standard, since the whole business of the country, including its banking, was being done on the basis of the decimal system of dollars and cents.

Immediately after the disallowance of the currency act of 1850 Hincks set about introducing a new and more comprehensive measure, with the object, also, of securing a uniform system throughout British North America. He entered into communication with the executive governments of Nova Scotia and New Brunswick, and found that they were prepared to recommend the necessary measures in their respective provinces. The most important of the resolutions which Hincks introduced in 1851 was that declaring the expediency of adopting the decimal system of dollars and cents as the basis of the provincial currency with a corresponding coinage. An act based on these resolutions was duly passed, establishing a decimal system of coinage in both gold and silver, although gold was made the standard, the silver coins being legal tender only to ten dollars. It was provided that as soon as convenient the provincial accounts should be kept in dollars, cents and mills. At the same time the British gold sovereign was accepted as the bullion standard, being rated at $4.86}, or £1, 4s. 4d., currency. A clerical oversight in drafting this act led to its being returned from Britain, and the British Treasury took advantage of the opportunity offered to present still another memorandum in the hope that even at the eleventh hour they might be able to persuade Canada not to adopt the American monetary system. They no longer objected to the decimal system, but wished it to be based on the pound currency and not on the dollar as a unit. This unit it was proposed to name a 'Royal,' to be henceforth represented by a gold coin with subsidiary

decimal silver and copper coins to be named shillings and marks. Hincks was at first inclined to meet his critics of the British Treasury half-way, but the general opinion of the legislature and of the business interests of the country was so strongly in favour of the system of dollars and cents that he gave way, and on that basis the new measure ultimately became law in 1853, embodying the chief features of the previous act. The British sovereign and American dollar were made unlimited legal tender, the former at $4.86 and the latter at $1. Halifax currency was not abolished as a conventional money of account, but the decimal system of dollars and cents was formally legalized as the basis of official and business accounting.

Hincks went out of power in 1854 just after the formal approval of his currency act by the home government. Under the new government there was some delay in bringing the act into operation. No coins were struck on the new basis as authorized. In 1857, however, a new act was passed requiring all government accounts to be kept, and all accounts rendered to the government to be stated, in dollars and cents without the option of using Halifax currency. This act came into force on January 1, 1858, and from that time dates the formal adoption of the decimal system of currency in Canada. As this system had been followed for years by the banks and the majority of the business houses, little change was experienced outside some of the government offices.

About midsummer 1858 the first instalment of new Canadian silver and copper coins was received from the Royal Mint. This shipment consisted of $100,000 in twentycent pieces, $75,000 in ten-cent pieces, $75,000 in five-cent pieces, and $50,000 in one-cent pieces. The British shilling, then only a token coin in Canada as in England, being conventionally used as twenty-five cents, will account for there being no twenty-five-cent pieces sent in this first shipment. No further changes in the Canadian currency took place until after Confederation.

DUR

V

THE BANKS AND SPECULATION

URING the remarkable economic expansion of Canada from 1850 to 1857 the banks found it necessary to face many new situations. They had constant temptations to overstep the bounds of legitimate banking with every prospect of securing large gains at little risk. From these profits they hoped to recoup the losses they sustained during the panic of 1847-48. The two chief lines of speculative enterprise at the time were land and railway stocks, and the banks began to be involved in both. When the boom collapsed in 1857, the banks of Western Canada in particular found themselves in a most embarrassed position. Concealing their real condition for a number of years, they made strenuous efforts to liquidate their holdings in wild lands and railway stocks. The revival of temporary prosperity as the result of the American Civil War served to postpone for a few years the inevitable collapse in a number of cases.

When the Hincks administration went out of power in 1854, the new government, with William Cayley as inspectorgeneral, was inclined to favour the older system of chartered banks. At the same time, with a view to maintaining a domestic market for public securities, Cayley undertook to require from all new banks to be established, and from the existing banks in the case of increases of capital stock, that they should hold at least one-tenth of their capital in provincial or municipal debentures. While this new measure did not ensure the solvency of a bank, or protect the noteholders, it led to the creation of a number of new banks willing to accept these terms, but otherwise of questionable advantage to the country. No further banks were established under the Free Banking Act, and the three already established under it obtained charters on the easier terms of the new government. The Bank of British North America alone continued under the Free Banking Act in order to preserve